As the recession continues to affect Americans, the gap between the wealthy and the poor is steadily increasing. Data recorded by the Census Bureau shows that there are more individuals living in poverty than ever recorded. The Great Recession has added 6 million people to the poverty ranks. As the gap continues to grow between the rich and poor, so does the ability to obtain a mortgage between individuals with low credit scores and those with high scores.

Harder to Qualify for a Mortgage

Obtaining a mortgage with a good rate has become increasingly difficult since the meltdown of the mortgage industry, a feat that is already difficult for those of limited means. According to a poll taken by Zillow Mortgage Market Place, nearly 33% of Americans are unlikely to qualify for a mortgage because of low credit scores. When using Zillow to search for loans, no results were yielded for individuals whose credit scores were 620 and below. According to Freddie Mac, lenders have returned to placing emphasis on a borrower’s credit history, capacity, and collateral.

There remain few options for individuals with low credit scores. In the unlikely case of getting their loan applications looked at thoroughly by a loan officer, individuals are simply told to improve their credit scores in order to qualify. However, many individuals are finding this to be a difficult task, and have to put their dreams of home ownership on hold. When you don’t have the cash flow to get the bills paid on time, your credit score suffers.

Higher Scores Only Help a Little

Even individuals with good credit scores are having a hard time securing mortgages with good rates. Banks and mortgage companies have become more selective in offering mortgages to consumers. Borrowers with credit scores of 720 and higher are receiving slightly better mortgage rates than individuals with scores ranging from 620 to 719.

According to Zillow, borrowers with mid-range credit scores (620 to 719) are receiving annual percentage rates of 4.73 to 4.44 percent. Borrowers with credit scores above 720 receive annual percentage rates of 4.3 percent. Borrowers with great credit scores were once able to get mortgages far better than those with average credit. This is no longer the case. Even those with credit scores of 780 and higher are seeing only slightly better rates than those with mid-range credit scores.

Difficulties for the Self-Employed

Not only are borrowers with low credit scores having a hard time securing mortgages, but so are self-employed individuals. Even with good credit scores, individuals who are self-employed have to go through great lengths to prove they are credit worthy. Those who are self-employed should be prepared to present current bank statements and tax records. Lenders are also requesting 401 (k) records to prove that individuals have savings and investments that can be easily liquidated.

Refinancing Obstacles

It is also more difficult for borrowers to refinance existing loans, mainly because of reduced equity in their homes. This issue also affects individuals with great credit. The FHA has started a new program to assist borrowers who are “underwater” on their homes, but it is yet to be seen whether this will actually help those in need.

America is experiencing record low mortgage rates. The large amount of foreclosures in America has substantially driven homes prices down. The problem, however, is that most Americans are not able to qualify for mortgages. In the subprime mortgage era, many individuals with low credit scores were able to buy homes. However, this contributed to the housing bubble in America, and those lending practices were eliminated.

The meltdown in the housing industry and the recession has changed the way people get mortgages in America. Lenders are simply hesitant to lend out money. In the wake of the financial bailouts administered by the government, there has come increased pressure from Washington for lenders to lend out money. However, there has been little change in new lending practices. Lenders are taking every precaution they deem necessary before approving individuals for mortgages. With the socio-economic gap growing wider, it will remain hard for people with low credit scores and struggling wages to qualify for loans.

No matter where you go and what you do in America, there is a good chance someone is talking about the recession. Nearly everything you hear in the news is centered on the recession. Whatever the topic, it’s skewed to talk about how it has been affected by downturn. Not only has the conversation changed, but Americans are behaving differently as well.

Spending Less

If you were to visit a car dealership, you would probably see a huge inventory of SUVs for sale. People are becoming more conscious of the amount of money they spend. They are also becoming very creative in their methods to save money.

With most of America still feeling the effects of the recession, topped with high gas prices, few people see the value in purchasing a SUV with low gas mileage. Buyers are opting instead for fuel-efficient cars. The recession has subtly curbed the appetite for lavish, expensive luxuries for many of Americans.

Saving More

Since the beginning of the recession, Americans have become thriftier. Savings rates have increased substantially. More individuals are placing their money in savings accounts, hoping to save enough for a possible rainy day.

A large number of people polled by Pew Research admitted to now buying less expensive brands. Over half of the people polled stated that they have canceled vacations. In addition, 33% said that they have cut back on alcohol and tobacco products. Substantial portions (28%) of adults from the ages of 18 to 29 have moved back in with their parents. Individuals are using whatever feasible methods possible to cut back on spending.

Lower Wages

The recession has not only made individuals fearful of losing their jobs, but nearly 35% of Americans earn less than they once did. Many older individuals with decades of work experience have come to the realization that they will never earn the of amount wages they previously earned.

Back to Basics

The recession has created a desire to have a simpler life for many people. There is a change in how people define the American Dream. Fewer people are dreaming of big houses, multiple vehicles, and vacations every year. The recession has curbed the expectations of many people. Families and individuals are becoming more content with living in apartments, riding bicycles, and planning local festivities for their families.

Risk Aversion

Investors who once took on risks in the hopes of earning high returns are becoming more risk averse. Many investors were terrified as they watched their retirement plans and investment portfolios shrink to record lows. The volatility in the stock market has caused investors to put their money in safer investments.

Bond funds and money market accounts are now attracting the majority of new money. The Investment Company Institute reported that poll numbers showed that only 30% of investors were willing to take on substantial risks to earn higher possible returns.

Economists and financial experts say investors will remain risk averse for quite some time. A long-term bull market would need to occur for investors to have enough confidence to invest more money in stocks. The increase in bond investments is also due to Baby Boomers making a transition from stocks to bonds to protect their investment portfolio.

How Long Will it Last?

Some economists believe that the changes in Americans are only temporary. They believe consumers will start spending as that once did when the economy starts improving. Others believe that the recession has permanently changed the mindset of Americans, and spending habits will never return to what they were in the past.

Whether things will continue as is or return to what they once were, it is safe to say that the recession has drastically changed how Americans see the world, their own lives, and their money.

The mortgage market has been going through a deflationary cycle recently. Since the housing bubble first started to burst in 2007, interest rates on mortgage loans have been falling like rocks. Mortgage rates have hit fifty-year lows. Demand, however, remains very weak.

There are various questions about this phenomenon running through the financial and business sectors. There is much confusion about how demand could be so low with such attractive rates. According to the standard supply-side formula, low interest rates should spur borrowing and investment. What’s really happening is that the savings rate has risen higher in the past eight years. In fact, in the second quarter of 2009, the personal savings rate hit five percent.

Low mortgage rates plus an increased sense of frugality combined with tighter lending standards results in homeowners who either cannot refinance or buy a home, or they are afraid to take the risk on buying a new home and prefer to live frugally within their current dwellings. The tighter lending standards mean that even borrowers who would have previously qualified for refinancing may not be able to do so. Many borrowers have found their financial situation worse off, due to factors such as a reduced credit rating, lowered income, and other negative factors that make it more difficult for homeowners to refinance because they cannot meet the stricter standards.

It is not surprising that the credit crunch brought down mortgage rates. The fact that the Federal Reserve was purchasing mortgage-backed securities from Fannie Mae and Freddie Mac helped to keep rates down. During the height of the financial crisis, the money market was suddenly gutted as depositors withdrew their funds. Since banks essentially create credit by lending out large loans such as mortgages, the expansion of credit was abruptly halted and in fact drastically reversed within a short period.

The sudden contraction of credit resulted in interest rates nose-diving because there was a sudden decrease in the amount of mortgage debt owed as the rate of defaults rose. The defaults were largely the result of falling home prices and high levels of consumer debt. Mortgage defaults decreased the overall debt load because the massive waves of foreclosures effectively wiped out hundreds of mortgage loans. This made the credit contraction even worse, and the rapidly shrinking money supply spurred the Federal Reserve’s lowering interest rates in order to keep the money supply from shrinking even further.

Unfortunately, the money supply continues to shrink due to deflationary trends despite the Federal Reserve’s efforts. The newly risk-averse banks simply do not lend out the money generated by the Reserve. Nationally, especially in the hard-hit areas of California and Florida, mortgage defaults continue to increase. Although the money market has appeared to recover, the contraction of credit continues to shrink the overall availability of currency.

This has resulted in low mortgage rates because of incredible deflationary pressures, not necessarily because of decreased risk. Even once the Federal Reserve stopped buying mortgage-backed securities from Fannie Mae and Freddie Mac, interest rates continued to fall. The deflationary trends have resulted in positive effects, however; the increased savings rate combined with the tighter standards have resulted in more consumers paying off their debts, with the salutary result that overall consumer debt levels in the United States have started decreasing.

In addition, there is a talk of a second wave of recession on the horizon. Whether the predictions are true or not, the negative sentiment makes already nervous lenders even tighter with their money. Why lend money at a risk when they can invest in government bonds and have a guaranteed profit?

All of the above notwithstanding, the low mortgage rates are continuing to stay low due to the continued credit contraction. Once the contraction bottoms out, mortgage rates should level off. They expected to remain low because of continued deflationary trends as the accumulated citizen and government debt is slowly paid off.

There are many differences between getting an FHA (Federal Housing Administration) loan and choosing to get a conventional loan, and yet at the same time, there are many similarities as well. In the total scheme of things, it is far easier for a potential homeowner to qualify for an FHA loan than it is for them to get rewarded with a conventional loan. An individual’s qualifying standards are put into play when deciding between the two loans. In a nutshell, a 3 to 5% down payment [of the homes asking price] is necessary for an FHA loan — versus — a 5 to 25% down payment when getting a conventional loan. Which one is going to be right for you, is what we would like to outline in assisting you in making the proper decision.

So you’re ready to buy a house, or refinance your existing one, and you just need to know what to do. Well, don’t worry friends we’ll take you through the process step-by-step. Since interest rates are low right now many homeowners are looking to refinance their mortgages during this time. It is also a good idea to consider whether or not a refinance of your mortgage is a good sound decision and makes financial sense.

Mortgage interest rates are one of the first things that you will want to consider, however this is just a small part of the grand scheme of things. Now, you’ve decided to find out if the refinancing plan is something that you want to do, and so you’ll need to know the different types of mortgage loan refinancing and the costs that come with them.(more…)